You can find plenty of tips on how to save money on your next car, whether they advise you to buy used or negotiate hard with the dealer. Yet the loan terms can add thousands of dollars to the final amount you pay for the vehicle. Here are a few practical tips on how to save money on your next car loan.
Choose the Right Type of Loan
A simple way to save money over the life of the loan is to select the right type of loan. If you choose a biweekly car payment, you’ll make the equivalent of 13 car payments each month. This cuts roughly 10% off the life of the loan. Choose a three year loan instead of a four year loan; this increases the monthly car payments but saves you thousands of dollars over the life of the loan. If you have to choose a longer loan to make the payments, don’t let it stretch out longer than five years. Otherwise, you take the risk of having made no progress on the principle of the loan by the time you replace your new car.
Work with Lenders who Work with You
Research your options when it comes to car loans at least as thoroughly as you research car vendors. This is especially true if you have bad credit. Visit sites by lenders who offer car loans for bad credit in Ottawa, instead of paying the extremely high interest rates that conventional lenders will offer you.
Start Shopping before You’re in a Crunch
You can avoid being rushed into making a decision by doing research on vehicles, dealers and lenders now. Then you won’t take the first loan you’re offered on the first car that meets your short checklist of essentials because you have to have a working car to get to work on Monday. Do your research now so that you know where you can get the best deal on a vehicle and have alternatives, such as selling your trade-in at one dealer and buying the car you want somewhere else. And you won’t end up over-charged for a desirable or used car.
Put More Money Down on the Car
The interest rate you’ll pay depends in part on the perceived risk of the car loan. One factor that goes into this equation is the size of the car loan relative to your income. The other is the risk that the lender will lose money if they have to repossess the car. The solution for both of these issues is to save a large down payment for the car. This same principle can be seen in other areas. For example, you don’t have to pay mortgage insurance or as high of an interest rate if you put 20% down on a home instead of 10%. A zero percent loan will always result in higher interest rates, fees, or both. Note that you don’t want to put so much money down on the car that you can’t pay all of the fees and taxes due up front; if you have to roll those costs into the loan, you’ll end up paying for it.
You have as many options for financing a vehicle as you have for buying one. Take advantage of the resources available to you so that you can save money on your next car loan.